I have determined that financially, people fall into one of three categories.

1. Family 1 has all the money they need for necessities and more and manage it very well.

2. Family 2 has all the money they need for necessities and more but live payday to payday with ever increasing debt.

3. Family 3 don't have enough money for necessities.

The funny thing about the three families above is that they could have exactly the same income and family size. This is not to say that special circumstances has nothing to do with it, but on the average most people live above their means.

Family 1 has established a workable budget. They don't pay more than they can afford for housing, transportation, utilities, etc. They also have money set aside for long and short term savings. This short term savings provides two things. First, it makes money available when the car breaks down, you need a new washer or any number of unexpected expenses that crop up. Second, it prevents the need to use credit cards for these items. The savings here could be hundreds of dollars. Family 1 planned.

Family 2 is still struggling to establish a budget. In many cases their house payments or rent is much more than they can afford. They don't take the time to evaluate the money that could be saved with little effort. Usually there is no short term savings, let alone short term. They use credit cards as if they were cash and pay hundreds of dollars in unnessary finance charges and penalities. These people find themselves with financial problems that often leads to bankruptcy. Family 2 either didn't plan or may not know how the handle their finances.

Family 3 has given up on a budget. No matter what they do there isn't enough money to pay for housing and other necessities. They struggle to put food on the table. Most don't qualify for credit cards, which is a good thing. In some cases this situation is self inflicted and some are due to circumstances.

What is the answer to these problems?

Family 1 - Leave these people alone unless you plan to ask their advice.

Family 2 - These are the people that need to seek help and stand a chance of becoming a family 1 family. The possible solutions include a debt management company like Consumer Credit Counseling Service. They need to establish a budget and stick to it. If their housing and other expenses are too high, then they need to cut back, even if they have to move. They also need to cut up the credit cards and think about consolidating. Depending on how far they are in debt, this could take years.

Family 3 - While their struggle seems useless, there are things that can be done. First, they need to see to it that everything is being done to keep expenses down. The electric bill is a good example. There is federally subsidized housing that only charges a small fee based on your income. Make sure that they are receiving all federal and state benefits that they are entitled. If they are able, they should seek job training or some other means to make their life a little better.

Which family are you? No matter whether your are family 1, 2 or 3, there is hope. The primary thing that must be done is to educate everyone that learning to managing their finances is absolutely for their peace of mind. With the vast amount of information on the internet providing help, this is possible.

Terry Rigg is the author of Living Within Your Means - The Easy Way http://www.homemoneyhelp.com/ebookadpage.html and editor of The FREE Budget Stretcher Newsletter and Budget Stretcher web site http://www.homemoneyhelp.com. He has 25 years of experience counseling individuals and families concerning their personal finances. Use this email link to get a list of all of Terry's articles by autoresponder at:articlelist@budgetstretcherpremium.com